Mortgage Denial Rates and Household Finances among Older Americans

Research Report

Mortgage Denial Rates and Household Finances among Older Americans

October 25, 2021

Abstract

Older homeowners don’t have enough money saved for retirement but home equity accounts for a disproportionate share of their total net worth. However, tapping home equity to improve retirement security is highly uncommon. In this report, the authors study mortgage denial rates for older Americans in the context of household financial characteristics. Older applicants experience much higher denial rates for forward equity extraction products such as cash-out refinances and home equity lines of credit than they do for reverse mortgages. The primary denial reason is debt-to-income ratio, which skews higher for older homeowners. The debt load carried by older homeowners has increased substantially over the last 20 years, driven mainly by primary mortgage debt. As limited retirement incomes and savings fail to keep up with rising debt levels, older homeowners will likely struggle to qualify for forward mortgages. This strongly suggests the need for equity extraction products whose underwriting is less dependent on incomes and debt, and more dependent on the value of home equity and household net worth as a way to improve retirement security for older Americans.

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